Search News Results
PIDA Steering Committee discusses progress in implementation of infrastructure projects in context of Agenda 2063
The African Union Commission, NEPAD Agency, representatives of Regional Economic Communities (RECs) and other strategic development partners have concluded a two day meeting of the Programme for Infrastructure Development in Africa (PIDA) Steering Committee in Midrand, South Africa, with a clear map of activities for the programme.
The PIDA Steering Committee is composed of NEPAD, AUC, African Development Bank (AfDB) and the Regional Economic Communities (RECs). It is responsible for evaluating the current status of implementation, identifying challenges and recommending ways to improve working processes within PIDA and to oversee its work and activities.
The AUC Director for Infrastructure and Energy Department, Mr Aboubakari Baba Moussa, who chaired the meeting, recognized the integration efforts that have been made by the continent’s Regional Economic Communities (RECs). He stressed the need for the steering committee to evaluate what has been achieved to date, three years after implementation of PIDA projects began.
Dr. Baba Moussa stressed that PIDA is at the heart of Africa’s Agenda 2063, which has endorsed infrastructure development as a key enabler of the continent’s integration. Further to this, the Director highlighted that all 54 member states of the African Union are fully committed to PIDA and that all five regions of the continent are fully integrated into the PIDA implementation process.
Finally, Dr Baba Moussa recalled that 2015 is the African Union year of “Women’s Development and Empowerment Towards Agenda 2063”, and in this context, called on the meeting to ensure that PIDA projects focus on the empowerment of women and youth on the continent.
The Head of the NEPAD Infrastructure Programme, Mr. Adama Deen highlighted the activities of the PIDA implementation work plan and its achievements since the last meeting which was held in Johannesburg, South Africa in October 2014. His presentation focused on the undertakings of the PIDA Capacity Building projects and the NEPAD-ISBU work plan.
He indicated that there has been progress as the first disbursement of funds from AfDB has been received by the Agency. Other highlights include the signing of four performance MoUs with the Regional Economic Communities (RECs), the upcoming recruitment of Infrastructure experts within the NEPAD Agency and RECs, the finalization of the RECs projects list and the NEPAD work plan and budget for 2015 is also prepared and ready for presentation.
The African Development Bank (AfDB) and GIZ both committed their continued support to the implementation of PIDA through various support mechanisms. This includes funding of the PIDA capacity building projects that will aid skills development in the RECs, NEPAD Agency and the African Union Commission.
Representing the AfDB, Mr. Shem Simuyemba commended the partnership between the AUC, NEPAD Agency and AfDB under PIDA which has achieved formidable results in advancing Africa’s infrastructure development. “This partnership has helped to have a coordinated approach in the delivery of PIDA, and has been critical in launching the joint Africa50Fund, which will help facilitate large-scale funding from the private sector,” he said.
The Steering Committee heard presentations on the Monitoring and Evaluation system currently being set up by the NEPAD Agency and the AUC, which will help monitor the progress of PIDA Projects. A presentation on the Virtual PIDA Information Centre was done and recommendations were made on the improvement of the portal to better serve its purpose of providing information on PIDA activities and projects on the continent.
Mrs. Wynne Musabayana presented the PIDA communication strategy, focusing on the 2015-2016 work plan and the formation of a PIDA communication network that will be focused on communicating PIDA. As one of the outcomes, the meeting recommended that the communications component should be included within all the protocols of PIDA project proposals.
The meeting also heard comprehensive reports from the East African Community (EAC), the Economic Community of West African States (ECOWAS), the Southern African Development Community (SADC) and the Union of Arab Magreb (UMA) on the implementation of the PIDA Priority Action Plan (PAP) projects within their regions. PIDA PAP is composed of 51 programmes in the sectors of energy, transport, trans- boundary water and ICT.
Africa’s engagements in recent global development processes such as the TICAD and the Forum for China Africa Cooperation were also discussed.
The meeting yielded key recommendations that will help in the successful implementation of PIDA at national, regional and continental levels. The steering committee is the highest technical body tasked with fostering overall coordination of implementation efforts by various stakeholders and to provide general policy guidance and facilitation for smooth implementation PIDA.
Related News
Comesa, SADC markets open up to East Africans
East African traders will have access to a wider market following the adoption of a uniform value addition regime by three economic blocs in Africa.
Twenty-six African countries, that are members of the Common Market for Eastern and Southern Africa (Comesa), the South African Development Community (SADC) and the East Africa Community (EAC), adopted the EAC benchmark required for goods to qualify for duty-free access to the combined free trade area during a recent tripartite negotiation meeting in Malawi.
This effectively opens the doors for EAC goods that could not access markets such as South Africa, Egypt, Ethiopia and Eritrea. The countries will in June combine to form the Tripartite Free Trade Area (TFTA) – Africa’s biggest trading bloc.
The 26 countries are home to 625 million people and boast a GDP of $ 1.2 trillion –about 58 per cent of Africa’s economy.
Under the revised EAC rules of origin, goods on which 35 per cent of the ex-works price is raised locally qualify to access the market of member countries duty-free. The rules are yet to be gazetted to gain legal force. Unlike ex-factory price, ex-works price allows more goods to benefit because it includes distribution costs.
The TFTA will be launched at the third Tripartite Free Trade Area Summit scheduled for Egypt in June. The partner states have been debating whether to use ex-works or ex-factory as the interim entry point into the TFTA.
Ex-works price includes distribution costs like transport and logistics to the shop yard – which increases the local input that is required for finished products to be considered TFTA goods. The ex-factory price looks at the value added on the factory floor only.
Andrew Luzze, the executive director of the East African Business Council, said the ex-works cost is a fairer benchmark because it incorporates the actual costs incurred by traders and manufacturers. It will make harmonisation of trade policies within the partner states easier.
“Ex-works takes into account charges and expenses of getting products to the market, which works well for the traders,” said Mr Luzze.
However, the EAC Director General in-charge of Customs and Trade, Peter Kiguta recently hinted that taxes on all EAC exports would be based on ex-factory prices in order to minimise disputes between EAC traders and Customs officials.
The major dispute has been on the valuation of goods produced and sold within EAC, with some states insisting that value added tax (VAT) should be pegged on the final cost of products, including cost of transport, insurance and handling.
Willingness basis
The Tripartite (Grand) Free Trade Area brings together the EAC, Comesa and SADC on a willingness basis, while allowing others to enter into bilateral arrangements.
It is expected to serve as the basis for the completion of a Continental Free Trade Area by 2017, with the aim of boosting trade within Africa by up to 30 per cent in the next decade, and ultimately establishing an African Economic Community.
According to the tripartite report, the member countries are also expected to liberalise their tariff lines with all the partner states, which will show how products produced within and outside the tripartite regions should be treated.
“The main aim of this is to resolve the challenges of different trade regimes brought about by the multiple memberships that are hindering regional trade processes,” said Mark Ogot, a tripartite expert at Kenya’s Ministry of East African Affairs, Commerce and Tourism.
The EAC will have three categories of tariff offers for Comesa, SADC, and the Southern African Customs Union and with other states who are not members in either of the blocs negotiations.
According to the report, the Comesa countries that are already fully liberalised will maintain the existing tariff lines but those without an FTA arrangement will need to harmonise their rates with other EAC states over a predefined time frame.
“The period for the phase down of the sensitive products like sugar and rice to both FTA and non-FTA member countries will be five years,” said Mr Ogot.
The TFTA members also agreed that food aid will be considered outside the rules of origin among partners.
“We are yet to agree on a common rule applicable to the full TFTA given that the current EAC rules of origin are substantially different from the regimes employed by Comesa and EAC,” said Mr Ogot, adding that negotiations are underway on permanent enforcement criteria.
Related News
Poultry industry accused of holding Agoa hostage
The Association of Meat Importers and Exporters of SA has accused the local poultry industry of holding the African Growth and Opportunity Act (Agoa) agreement with the US hostage.
AMIE has decried the actions of the local poultry industry in a statement saying “the local poultry industry cannot hold the entire African Growth and Opportunity Act renewal process hostage”.
Two United States senators have threatened to try to block South Africa from a lucrative US-Africa trade agreement if Pretoria doesn’t lift import duties on cheaper cuts of chicken.
South Africa has imposed “anti-dumping” tariffs since 2000 of above 100% on certain products derived from the chicken carcass.
In the US white-meat, more commonly known as chicken breasts, fetch a premium price due to market demands. Brown-meat, or bone-in chicken, is a surplus product which allows the US to enter the SA market with cheaper prices.
AMIE CEO, David Wolpert, quoted an argument made by US ambassador Patrick Gaspard in a Business Day column in which he said that SA has made better use of Agoa to create jobs and support growth than any other country.
“South Africa exported over R23bn ($2.3bn) worth of cars to the US, in turn supporting some 30 000 workers in Port Elizabeth and Gauteng,” Wolpert said.
“As South Africa faces potential exclusion from Agoa renewal, it is nothing more than manipulative obfuscation to debate whether or not the US poultry industry should or should not have taken measures in the past 15 years to protect their legitimate export interests,” he said.
According to the South African Poultry Association (Sapa) the US has had over 15 years to challenge the alleged unfairness and CEO, Kevin Lovell, told Fin24 that they do not have a case.
“The anti dumping tariff is not allowed to be punitive. It allows us to correct the market distortion so that the two parties can compete on a level playing field. The Americans are not excluded, they simply have to compete in the proper way [which doesn’t interest them],” Lovell said.
Related News
Partner states to implement WTO trade deal
The East African partner states have taken the final step towards implementing the World Trade Organisation Trade Facilitation Agreement, which is expected to widen the market for the region’s goods and services.
The five partner states are expected to ratify the WTO protocol before March 31 in order to show their commitment to the trade pact they recently signed with the US.
It is expected that once the protocol is implemented, it will help reduce the cost of doing business between the EAC and other economies by almost 14.5 per cent, adding to trade reforms already underway in the region.
James Kiiru, an external trade officer at Kenya’s Ministry of Foreign Affairs and International Trade, said final preparations are underway to ratify the protocol not only because of the deadline but also because Kenya will be hosting the WTO summit towards the end of the year.
“A well-functioning trade facilitation regime will allow easier and faster flow of goods across borders. The EAC will be viewed as progressive and ready to attract investments and also promote intra-regional trade,” said Mr Kiiru.
In the new deal, recently signed in the US, the two parties agreed to adopt the WTO Trade Facilitation Agreement signed in Bali in 2013, which commits countries to ensure that trade issues, including Customs, documentation procedures along their transport corridors and ports are completely abolished to reduce the cost of doing business.
“The US has committed to supporting the member states to implement the WTO agreement and to team up with other governments and the private sector on trade issues,” said Mr Kiiru.
In November last year, WTO members adopted a protocol to add the Trade Facilitation Agreement to the WTO deal opening the process up for individual WTO members to formally accept the agreement. So far, only China, Korea, Russia, Mauritius and the US have ratified the protocol.
The WTO agreement will enter into force only when two-thirds of WTO’s members have completed their domestic legal procedures and submitted their instruments of acceptance.
“The focus of the US-EAC trade agreement is on trade and investment,” said Mr Kiiru, adding that US companies like IBM, Fedex and DHL are keen on investing in the region while the ones already here plan to expand.
In the agreement, the US will provide access to its markets for East Africa’s agricultural produce and in return the region will cut tariffs on imported manufactured goods from the West.
Currently, the EAC products access quota-free markets in the US through the the Africa Growth and Opportunity Act (Agoa), which is expected to be renewed after the September expiry for another 15 years.
“We are however not utilising this opportunity as the region is only able to export up to five products to the US,” said Mr Kiiru, adding, “The challenge the partner states have is on poor product standards, which hinder them from selling more products in the US.”
The two parties will work together to develop and advance trade facilitation initiatives on sanitary and phytosanitary (SPS) measures to meet international standards and guidelines.
“No later than 18 months after the coming into force of this agreement, each EAC partner state shall establish an effective process to ensure that it notifies all proposed SPS measures to WTO,” read the EAC-US trade agreement.
The main exports from East Africa to the US are agricultural goods and textiles, while US exports have so far consisted of heavy machinery and aircraft.
Jane Ngige, the CEO of the Kenya Flower Council, said the main challenge for horticultural products in accessing the US market is lack of direct flights.
“We currently have no direct flights and as a result of routing through Holland it takes longer for our fresh produce to get to the US market,” said Ms Ngige, adding that the EAC partners need to also negotiate for direct flights.
Andrew Luzze, executive director of the East African Business Council (EABC), said that by adopting the WTO trade agreement, the region will build on the reforms being pursued by the partner states, which have resulted in substantial reductions in the time and cost of moving goods across borders within the EAC.
“The US has had bilateral partnerships with individual EAC states since 2013 but this agreement marks the first of its kind with the regional trading bloc,” said US trade representative Michael Froman.
Trade between the US and the EAC countries in 2014 increased by 52 per cent to $2.7 billion. Imports from the US totalled $2 billion; Exports totalled $743 million.
According to Eric Musau, a business analyst at Stanbic Investment Bank, the US wants to maintain its presence in Africa since China, India, and the EU have all increased their economic links and trade deals with African countries over the past decade.
“This will not have much impact on economic development in the region but will help with capacity building on the areas of transport and trade facilitation,” said Mr Musau.
Related News
2nd Extra-Ordinary Meeting of the Sectoral Council on Environment and Natural Resources concludes in Bujumbura
The 2nd Extra Ordinary Meeting of the Sectoral Council on Environment and Natural Resources concluded on Friday at the Royal Palace Hotel in Bujumbura, Burundi.
The overall objective of the Meeting was to consider the report of the Senior Officials to the 2nd Extra Ordinary Meeting of the Sectoral Council on Environment and Natural Resources held on 29th October 2014 in Nairobi, Kenya that considered three policy issues namely; the way forward on the issues raised by the United Republic of Tanzania on the ratification of the Protocol on Environment and Natural Resources Management; the Concept Paper on the justification for a Regional Climate Change Bill as directed by the 29th Meeting of the Council of Ministers; and the revised EAC Disaster Risk Reduction and Management Bill as directed by the 28th Meeting of the Council of Ministers.
The Sectoral Council of Ministers responsible for Environment and Natural Resources, which was chaired by Hon. Stephen J. Masele, Tanzania’s Deputy Minister, Vice President’s Office, established a Multi-Sectoral Technical Task Force comprising of Experts in Environment and Natural Resources including but not limited to Water, Wildlife, Forestry, Energy, Minerals and Legal Experts to study the issues raised by the United Republic of Tanzania and any other comments from any other Partner State.
The Sectoral Council directed the EAC Secretariat to develop the Terms of Reference including composition and Road Map with clear timelines for a Technical Task Force to study the issue raised by the United Republic of Tanzania and from any other Partner State and submit to Partner States for comments.
A Meeting of the Multi-Sectoral Technical Task Force will be convened by 30 June 2015; and the EAC Secretariat will submit the Report of the Technical Task Force on the Protocol on Environment and Natural Resources to the 4th Sectoral Council on Environment and Natural Resources. The Sectoral Council directed the Partner States to undertake national consultations on the draft concept paper for the justification of the EAC Climate Change Bill by 30 April 2015 and submit comments to the EAC Secretariat. It also directed the Secretariat to support the Republic of Burundi to undertake national consultations on the draft concept paper for the justification of the EAC Climate Change Bill by 30 April 2015. The Secretariat is expected to consolidate the comments with a team of Partner States Experts by 30 June 2015 and submit the revised concept paper to the 4th Sectoral Council on Environment and Natural Resources.
The Sectoral Council took note of the status of the revised EAC Disaster Risk Reduction and Management Bill, 2014 and directed the EAC Secretariat to develop a Technical Paper on an appropriate institutional arrangement for Disaster Risk Reduction and Management by 30 April 2015 and share the Technical Paper with the Partner States for their comments.
The Sectoral Council directed Partner States to submit their comments on Technical Paper on the appropriate institutional arrangement for Disaster Risk Reduction and Management by 15 May 2015. It also directed the EAC Secretariat to expedite the process of re-drafting the revised draft Bill taking into consideration the Technical Paper on institutional arrangement on Disaster Risk Reduction and Management that is in conformity with the standards of the Regional Bills through technical experts and legal drafters by 15 August 2015.
The Secretariat is expected to submit the revised draft to a joint Sectoral Council on Environment and Natural Resources and Interstate Security prior to its consideration by the Council of Ministers scheduled for November 2015.
EAC Protocol on Environment and Natural Resources Management
The EAC Protocol on Environment and Natural Resources Management was signed by the Republic of Kenya, United Republic of Tanzania and Uganda on 3rd April 2006. The Republic of Uganda and Kenya ratified the Protocol in 2010 and 2011 respectively. The Protocol was negotiated and signed before the Republic of Burundi and the Republic of Rwanda joined the Community.
The aim of the Protocol is to promote and enhance cooperation amongst Partner States in the conservation and management of environmental and natural resources, adopt a common vision in addressing challenges of sustainable development, make concerted efforts to prevent and control environmental degradation.
The United Republic of Tanzania could not complete the process of ratification of the Protocol on Environment and Natural Resources due to a number of issues identified during the ratification process that need to be addressed. A summary of the issues raised by The United Republic of Tanzania is:
(a) the scope of the Protocol in some areas is too wide and covers issues beyond the Environment and Natural Resources Management;
(b) the Protocol includes marketing and trading in minerals and yet the focus of the Treaty is the protection of the environment in mining activities and not regulation of trading in minerals;
(c) the Protocol includes development and transmission of the electric power, development of integration policy on rural electrification and inter-connection of Partner States, electrical grids which is beyond environment and natural resources management;
(d) the Protocol includes matters of tourism development rather than environmental management with regards to tourism. Moreover, Partner States are negotiating a Protocol on Tourism and Wildlife Management where issues of Tourism Development can be better articulated;
(e) Some key terminologies are not defined while others are not adequately defined which may cause interpretation inconsistencies in implementation;
(f) The Protocol contradicts with the Protocol for Establishment of the EAC Common Market in particular access to use of land and premises should be governed by national policies and laws.
EAC Climate Change Policy
The EAC Climate Change Policy was approved by the 9th Extra Ordinary Meeting of the EAC Heads of State Summit on 19 April 2011 in Dar es Salaam. Further, the 27th Meeting of the Council of Ministers held on 31 August 2013 approved the following key climate change strategic documents in accordance with the Climate Change Policy:
(i) the EAC Climate Change Strategy and EAC Climate Change Master Plan; and
(ii) Operational Modalities for the EAC Climate Change Fund
The proposal to initiate the EAC Climate Change Bill is an effort to fully implement chapter four of the EAC Climate Change Policy on institutional and financing framework, and the East African Legislative Assembly (EALA)’s Report and Resolution on Climate Change adopted during the 1st Session of the 4th Meeting of EALA held from 21 January to 1 February 2013 in Bujumbura, Burundi.
The 3rd Meeting of the Sectoral Council on Environment and Natural Resources held from 27 to 31 January 2014 in Bujumbura directed the EAC Secretariat to initiate the process of formulating a Regional Climate Change Bill. The proposal to initiate an EAC Climate Change Bill is a follow-up action to the outcome of the 1st Parliamentarians’ Workshop on Climate Change held from 11-13 November 2012 in Mwanza. The outcome of the Workshop was a Report of the EALA Committee on Agriculture, Natural Resources and Tourism on Climate Change and a draft EALA Resolution on Climate Change. The Report and Resolution were further, adopted during the 1st Session of the 4th Meeting of the EALA held from 21 January to 1 February 2013 in Bujumbura, Burundi.
The objective of the proposed Bill is therefore to give legal effect to the EAC Climate Change Policy and specifically; establish a Regional Institutional Structure to coordinate Climate Change initiatives; fully operationalize the EAC Climate Change Fund; and establish an EAC Carbon Credit Exchange Mechanism.
Draft EAC Disaster Risk Reduction and Management Bill
The Draft EAC Disaster Risk Reduction and Management Bill, 2013 was formulated in accordance with Art. 59 (1) of the EAC Treaty, the EAC Disaster Risk Reduction and Management (DRRM) Bill was initiated and introduced to the East African Legislative Assembly as a Private Member’s Bill. The objective of the Bill is to provide a legal framework for intervention and assistance for people affected by climate change and natural hazard-related disasters and to protect the natural environment through integration of comprehensive disaster risk reduction and management practices in the East African Community.
The Bill was moved for second Reading during the 1st Meeting of the Second Session of the East African Legislative Assembly, which took place on 19-31 August, 2013. Upon consultations among the Ministers Responsible for the East African Community Affairs and the EALA Committee on Agriculture, Tourism and Natural Resources, the Hon. Chairperson of the Council successfully moved a motion to adjourn debate in order to allow the Council of Ministers:
(a) consult on and consider the policy implications of the Bill;
(b) pursue the ratification of the EAC Protocol on Peace and Security which among other objectives, provides for cooperation in Disaster Risk Reduction, management and crisis response; the coming into force of this protocol would articulate on relevant institutional arrangements under the Bill; and
(c) taking over the Bill for appropriate amendment and reintroduction as a Council of Minister’s Bill.
Related News
Lutombi spearheads SADC transport
Roads Authority Chief Executive Officer Conrad Lutombi is leading the drive to create a fully harmonised road transport system within the SADC region that can compete with the best internationally.
The Association of National Road Agencies (ASANRA) elected Lutombi as its president in October last year.
In an interview with the Windhoek Observer, Lutombi said his main objective as president would be to enhance regional policy coordination and road transport system integration, which would bring about improved intra-regional road transport efficiency and lower transport costs.
He said Namibia, through the holding of the ASANRA presidency, would be able to influence some changes in the regional road transport system to ensure that other countries recognise what Namibia has to offer.
The RA Chief Executive Officer considered this important in view of Namibia’s stated aim of becoming a logistics hub by 2017.
“For example, with traffic that originates from the Walvis Bay harbour to other countries in the region, there should be some kind of harmonisation in terms of standards, signage and traffic regulations.
“As a country we will definitely benefit and holding the presidency means we will be able to ensure that other countries recognise our laws.
“Other countries may even use us as a showcase to see what we are doing and this would be quite beneficial to Namibia.”
The ASANRA president said that while harmonisation of the SADC region transport system had reached an advanced stage, they still needed to do more to ensure full integration amongst all the 14 member states.
“Today if you travel, you will find that the traffic and transport rules and regulations in, for example, South Africa, Namibia, Botswana, Swaziland and Lesotho [SACU states] are almost the same.
“If you look at Zimbabwe, Zambia, Tanzania and Mozambique most of them have been harmonised, but of course some differences still exist especially when it comes to Angola where they still drive on the right side of the road.
“Our cross border transport system has been mostly harmonised. When you look at the vehicle standards and types, to a certain extent we have harmonised.
“If you look at the axle load in terms of the operation of the weighbridges and overload control, we have harmonised.
“The law here in Namibia is the same as in Zambia and South Africa, because otherwise you would have conflicting rules.
“You would have a situation where you weigh a truck here in Namibia crossing into Zambia carrying a load within the legal limit, but there they would consider it overloaded because you have differences in the load limit regulations.
“I think 90 percent of the traffic and transport regulations are fully harmonised as we speak. You will still have few countries like Angola and probably DRC and others where they are still behind, but generally in the SADC region we are almost on par,” he said.
Lutombi also said the time had now come for countries in the SADC region to develop human capital capacity so that they could become self-sufficient in terms of expertise.
“We rely mostly on international countries in terms of expertise. Yes it is good, but it is time we develop human capital capacity,” he noted.
To address the dearth of engineering skills in Namibia, the Roads Authority gives out annual bursaries to students who want to pursue engineering studies.
The agency also recruits engineers from other countries within the region and internationally.
However, Lutombi said hiring experts from other countries would not provide a lasting solution because it created problems in the source countries.
“This is where ASANRA is pushing to say that even if you are recycling engineers from the region it will not help if you have a minimal number of engineers.
“The only thing that will happen is that Namibia is maybe better in terms of paying them so they will all run to this country and the other countries will suffer.
“So what we want to do is to encourage member states to invest in encouraging people, especially our younger generation, to pursue careers in engineering because otherwise we cannot develop our countries.”
All the SADC region member states are members of ASANRA. A board of directors comprising of CEOs from each roads agency/authority in SADC headed by a president governs ASANRA.
The president serves a two-year term with an option to renew for a further two years.
Related News
West African economies feeling ripple effects of Ebola, says UN
New study calls for preparedness in West African nations, regional approach to stop, treat and help recover
West African nations that experienced low or zero incidence of Ebola have already been affected by the Ebola crisis because of their deep connections with the three most affected countries, according to a new UN report released on 12 March 2015.
“The consequences of Ebola are vast,” said Abdoulaye Mar Dieye, the Director of UNDP’s Regional Bureau for Africa. “Stigma, risk aversion and shutting down of borders have caused considerable amounts of damage, affecting economies and communities in a large number of countries across the sub-region”.
According to the United Nations Development Group (UNDG), West Africa as a whole may lose an average of at least US$3.6 billion per year between 2014 and 2017, due to a decrease in trade, closing of borders, flight cancellations and reduced Foreign Direct Investment and tourism activity, fuelled by stigma.
This has also had an important impact on human development. The region’s per capita income is expected to fall by US$18.00 per year between 2015 and 2017. In Côte d’Ivoire, the poverty rate has risen by at least 0.5 percentage points because of Ebola, while in Senegal, the proportion of people living below the national poverty line could increase by up to 1.8 percent in 2014. In addition, food insecurity in countries such as Mali, and Guinea-Bissau is expected to increase.
Citing the African Union’s efforts to send doctors from Nigeria and Ethiopia, coordinated efforts by the Mano River Union and ECOWAS’s Regional Solidarity Fund, the report calls for the increased involvement of West African governments and regional institutions to stop the epidemic and help the affected countries to recover.
In addition, the report says, preventing future outbreaks must involve a combination of regional and national interventions that include strengthening health sectors across the region, the immediate creation of a regional Centre for Disease Control and Prevention, coordinated border control and establishment of early warning and disaster management systems.
Such prevention efforts can draw on the experiences of countries such as Nigeria and Senegal, whose decentralized health systems played a key role in slowing down and eradicating transmission of the disease.
The document also calls for an integrated recovery package, which includes re-opening borders, creating effective social safety nets for affected and vulnerable populations. Improved regional and international cooperation will also be required to ensure recovery efforts gain momentum in the three most-affected countries.
Related News
BRICS apart as oil prices plunge
The oil price plunge since last June has been deemed, overall, as a boon for the global economy. However, that depends on where one stands as a producer or user, as illustrated here with the divergence of impacts on BRICS economies.
Lower oil prices have come for long
Brent crude oil prices fell to US$45 a barrel at the end of January, from as high as US$115 in June last year, marking the end of a four-year period of fluctuations in the range of US$93-$118 (Chart 1 – left side). They have recently rebounded to levels close to US$60 but most forecasts point to prices oscillating between $50 and $80 a barrel for through 2016.
Chart 1
Source: Baffes et al (2015)
Supply-side developments have played a major role. The steady increase of U.S. shale oil production – together with other unconventional oil sources elsewhere – during the long-period of high prices led to a persistent excess of global production over consumption.
Saudi Arabia, the “swing” global producer, started breaking the previous price-setting norm in August of last year, by discounting prices to Asian consumers to protect market share. In November, the OPEC decision to uphold its production level corresponded to a structural break in oil price formation, in the sense that maintaining market shares clearly superseded targeting any oil price band. Given that shale oil production units can rise or decrease faster than conventional oil, responding to market price fluctuations, the change of the price-setting regime seems to have come to stay for long (Chart 1 – right side).
There have been winners and losers
The overall net impact on global GDP is expected to be positive. Besides a boost to global demand derived from the transfer of purchasing power from oil producers to consumers, lower oil prices have widened the space for (temporary) expansive monetary policies and enabled lower government spending with fuel subsidies.
There have been winners and losers across countries and regions, but negative impacts on the latter are expected to be less globally significant than benefits to the former. As Kaushik Basu, Senior Vice President and Chief Economist of the World Bank has remarked yesterday:
“Our estimate is that a decline in oil prices of about 50 percent could be associated with a 0.7-0.8 percent increase in global GDP over the medium term.”
From a country standpoint in particular, it has all depended on the role and weight of oil production and consumption in its economy. Net exporters (importers) of oil have received a negative (positive) impact from the deterioration (improvement) of terms of trade, accompanied by corresponding income shifts between producers and users within the country – Chart 2 exhibits non-advanced economies as net oil exporters and importers.
Chart 2
Fiscal impacts have been negative where taxes on exports/consumption of oil constitute an important source of government revenues, while positive with respect to outlays with energy subsidies – Chart 3 shows how some countries are fiscally dependent on oil revenues (left side), as well as that fossil fuel subsidies can be found on both net exporter and importer sides (right side). Country-specific contexts and policy responses have also weighed on the final outcome.
Chart 3
The country-specific nature of impacts of lower oil prices can be illustrated with the diversity of situations among the group of BRICS (Brazil, Russia, India, China, and South Africa) economies. Three distinctive positions can be pointed out.
Russia faces an additional whammy
As oil and gas account for more than 70% of Russia’s exports and nearly half of its budget revenues (Chart 3), its economy has suffered a strong negative impact from lower oil prices. The energy sector is responsible for 17-25% of its GDP.
The oil price fall has come on top of economic sanctions from the EU, Japan and the US related to the Ukraine crisis. While balance-of-payments current account balances have remained positive, annual resident capital outflows were running at 4-5% of GDP last December.
Devaluation pressures on the Ruble stemming from geopolitical risks increased after the oil price fall gathered pace. As a result, not only has annualized inflation moved above 10% this year, but the US$600bn foreign debt of Russian banks and non-banking firms – already facing the sanctions bar from refinancing with US and European banks – became an increased source of concern. Although large foreign reserves may still serve as a buffer against balance-of-payment crisis, real GDP is expected to slump by more than 3.5% this year, followed by another 1.5% in 2016.
China, India, and South Africa have benefited from lower oil prices
According to World Bank estimates – see the Global Economic Prospects released in January – a 10% decrease in oil prices is expected to lift growth in oil-importing economies by something in the range of 0.1-0.5 percentage points, depending on the share of oil imports in GDP. Positive fiscal and current-account impacts are also expected. China, India, and South Africa are beneficiaries.
In China, the World Bank estimates an activity-boosting effect of lower oil prices in the range of 0.1-0.2%, given that oil comprises only 18% of energy consumption. A deflationary impact is also on the cards, although it will be limited as energy and transportation correspond to less than 20% of the CPI. Fuel subsidies amount to only 0.1% of GDP, so fiscal impacts will not be significant. On the other hand, as China remains the second-largest world importer, lower oil prices throughout 2015 will likely raise its current account surplus by 0.4-0.7 percentage points of GDP.
India has an oil import bill of 7.5% of GDP (Chart 2) and has derived high terms of trade gains from the oil price evolution. Furthermore, its challenges with fiscal deficits and high inflation have been made easier. The government has already taken the opportunity to phase out diesel subsidies and hike taxes on oil derivatives. Falling oil prices have also helped to bring inflation down to less than 4.5% a year last December, opening space for some monetary policy loosening ahead.
South Africa is also a net importer of oil and a beneficiary from lower prices, including by corresponding effects on inflation and the import bill (Chart 2). As far as current-account deficits and GDP are concerned, recent oil price developments have come as a relief after the previous decline of prices of metals and minerals – see Chart 4 – that comprise a substantial chunk of the country’s exports and GDP.
Chart 4
Source: World Bank, Commodity Markets Outlook, January 2015
Brazil has faced a mixed impact from declining oil prices
Brazil has a small deficit on its oil foreign trade – as compared to the countries above (Chart 2) – and that qualifies it for potential benefits of declining prices both on its current-account deficit and as a facilitator for an undergoing domestic price realignment of oil derivatives. On the other hand, the new international price regime and levels have come at a moment in which strong bets on future oil-related investments had been made in previous years, toward an expected crossing of the threshold to the group of net-exporting countries. Together with the unfolding corruption scandals in state-controlled Petrobras, world oil price developments have prompted a full downward review of such investments.
The oil price plunge brings an opportunity to improve policies
Those oil-exporting countries that prepared themselves for the downward phase of the price cycle, constituting fiscal and international reserve buffers during good times, have been able to cope better with the new scenario. For all the others, besides realizing what a high premium must be attached to diversifying the economy from an excessive dependence on a single commodity, there is the template for future upward cycle phases left by those successful hoarders.
Finally, across the whole range of countries, the current oil price phase constitutes an opportunity to suppress existing distortive fossil-fuel subsidies. As argued by Basu and Indrawati (2015), government expenditures with fuel subsidies should be reallocated to effective pro-poor policies. If that is accompanied by some sort of carbon taxation, cleaner energies may keep their development.
Otaviano Canuto is Senior Advisor on BRICS Economies and ex-Vice President at the World Bank. All opinions expressed here are the author’s own and do not necessarily reflect those of the World Bank.
Related News
A matter of size
Sub-Saharan African businesses must produce more jobs to fulfill the region’s promise
Given the speed at which many economies in sub-Saharan Africa have been growing in recent years, one could easily conjure up images of “Help Wanted” signs at nearly every firm. But even at more than 5 percent a year, the region’s growth has fallen short of providing enough paying jobs, especially outside agriculture.
The labor force in sub-Saharan Africa is around 450 million, with fewer than 40 million on formal payrolls. But it’s not that the rest of the people don’t work; in fact, unemployment in the region is relatively low. The problem is transforming the job market from one that has kept people working in small informal jobs and on farms – often for little or no pay – to one that offers more opportunities in the manufacturing and service sectors, where there is more income security. The International Labour Organization (ILO) says that 76.6 percent of workers in sub-Saharan Africa are in vulnerable forms of employment.
And with the highest fertility rate in the world, sub-Saharan Africa needs businesses to provide many more jobs if the region is to absorb the rapidly expanding workforce. The United Nations says the working-age population in sub-Saharan Africa will more than double by 2050.
Potential boon
Although the growing population puts pressure on the job market, it also could be a boon to the region. In sub-Saharan Africa, the 32 percent share of the population ages 10 to 24 is the world’s highest – which the ILO says offers a “demographic dividend” because the productive capacity of the working-age population will surge with the additional labor supply.
An IMF study, “Africa’s Got Work to Do: Employment Prospects in the New Century,” says that if sub-Saharan African economies can attract more investment in labor-intensive production from east Asia, the region could indeed experience a large jump in manufacturing output for exports. But today fewer than 10 percent of the region’s workers have industry jobs.
A recent study by the Center for Global Development (CGD) found that firms from 41 sub-Saharan African countries are 24 percent smaller than those elsewhere in the world. The study was based on data from 41,000 formal firms in 119 countries and compared their productivity over time.
The study, “Stunted Growth: Why Don’t African Firms Create More Jobs?” suggests several possibilities why the region’s businesses are smaller, including reluctance by family-owned businesses to hire non-family employees and limited market share potential in some sectors. But overall, the study says, the region’s poor business environment is what keeps firms from growing.
And while such factors as limited access to finance and reliable electricity supply are obvious obstacles, regional governance issues also play a part in keeping the number of employees down. Vijaya Ramachandran, a senior CGD fellow and a coauthor of the report, said big companies tend to be easy targets for governments desperate for tax revenues or for corrupt officials looking for bribes. As a result, “In some countries, businesses want to stay small in order to stay below the radar of government regulators.” According to the study, the burden of dealing with government bureaucrats increases significantly for firms with more than 100 employees.
Sometimes small is good
Sub-Saharan Africa’s formal sector is an important source of tax revenue, and bigger firms would help finance social programs such as pension plans and health care. But with 90 percent of jobs in either small informal household enterprises or subsistence agriculture, workers have little chance of landing a formal job with benefits. IMF senior economist Alun Thomas said, “Although wage employment (paid work outside the agriculture sector) is often mentioned as the ultimate objective in employment policy, household enterprise employment is most likely to provide the bulk of new jobs going forward.”
And although small household businesses generally don’t pay taxes and are often difficult to sustain, the hope is that these businesses will expand – starting, say, by hiring a neighbour – and consider registering their business to gain access to finance. Governments can encourage entrepreneurs to join the formal economy by providing a more welcoming business environment.
In the end, formal and informal businesses in sub-Saharan Africa face the same problems. And given the scope of the employment issues in the region, policymakers should be working toward improving the regulatory environment and fixing crucial infrastructure shortfalls, such as electricity supply, that both sectors depend on to grow.
Bigger firms and more local entrepreneurs will be key to improving the lives of the millions who need steady work now, and in the future.
This article appears in the March 2015 edition of Finance & Development, published by the IMF.
Related News
Nigerian central bank plans sanctions against exporters – governor
Nigeria will enforce the repatriation of dollar-proceeds from exports and is planning sanctions against those not complying, Central Bank Governor Godwin Emefiele told Reuters on Tuesday.
Africa’s largest economy has been hit hard over the past year by a steep drop in oil prices and political uncertainty over a closely fought and delayed election.
The turmoil has seen the naira lose more than 20 percent against the dollar since the middle of 2014, breaking through the important 200 per dollar level last month as it racked up the biggest monthly loss in more than five years.
In February, the central bank introduced trading rules under which banks will be able to purchase foreign exchange only if they have a prior order from a corporate customer, such as a fuel importer or foreign mobile phone company looking to repatriate profits or dividends.
Now, policy makers are looking at exporters to ensure hard currency liquidity within Nigeria, pondering sanctions against exporters who fail to repatriate proceeds and funnel them back into the official market within the stipulated 90-day limit, Emefiele said.
“If you refuse to sell your export proceeds that you repatriate in the foreign exchange market ... we will ban them from accessing foreign exchange in the Nigerian foreign exchange market,” Emefiele told Reuters in an interview.
Emefiele said much of the pressure on the naira over the past year was due to activity of importers and exporters, the former frontloading purchases of hard currency while the latter were hoarding their overseas cash earnings.
The resulting hiatus on the currency markets has forced the central bank to intervene, and this has led to a steep drop in Nigeria’s foreign cash reserves to four to five months’ worth of imports.
Forcing exporting and importing companies to comply with existing regulations on their use of the currency market was now necessary.
“Another thing we will do is that we will ask the banks not to loan money to them (exporters who don’t repatriate hard cash on time),” he said, saying the measure would come into effect soon, but declining to give a date.
Emefiele estimated that some $3-4 billion of proceeds due to be repatriated were outstanding, of which 40 percent would come from oil companies.
“We are saying ... don’t put your foreign exchange in the hands of people who want to carry cash and take it abroad,” he said. “Use it to import tangible items that are documented.”
Also scrapped amid February’s de facto devaluation were the bi-weekly auctions in which the central bank sold foreign currency at a predetermined rate. Emefiele said these would not be reintroduced.
“(The window) is not closed. It is crushed and destroyed for life,” said Emefiele. “Nothing is going to be opened again. We are not going to go back to a subsidized regime.”
Related News
As Ebola ebbs, Liberia focuses on getting back to work
In Liberia, the number of weekly new cases of Ebola Virus Disease (EVD) has fallen sharply since November 2014, and domestic “aversion behavior” due to the crisis is abating. There is greater mobility of people, as reflected in the reopening of markets and increasing petrol sales. The government is more bullish about the future course of the epidemic and has lifted curfews, recalled furloughed civil servants, and opened borders, and is reopening schools, shuttered since the onset of the crisis.
As the crisis eases, the government is sure to give more attention to engineering a rapid economic recovery. The collapse of economic activities precipitated by the Ebola crisis has been sharp, severe and unprecedented. Although the indirect effects of the illness and related deaths have consumed health care resources and prevented temporary or permanent participation in the labor market, it is the behavioral responses which have weighted most adversely on aggregate demand and supply. This has resulted in a sharp contraction of economic activity and the loss of many jobs, particularly in the agricultural and services sectors.
An ongoing mobile phone survey being conducted by the World Bank suggest that nearly 41% of Liberian household heads who were working in the first half of 2014 reported being out of work in January 2015, with recent job losses concentrated among urban, private sector wage-earners. There is also a disproportionate gender effect: Of those working in the first half of 2014, 60% of women versus 40% of men had ceased to work by January 2015.
Prior to the crisis, the government of Liberia was already deeply concerned by the relatively high rates of joblessness in an economy that is recovering from 14 years of civil conflict. This concern is heightened by the fact that many of the unemployed are youths whose prolonged idleness may pose risks to the peace and security of the country. A recent World Bank policy note, “Liberia Employment and Pro-Poor Growth,” has also shown strong association between employment and poverty.
As Liberia emerges from the shadows of the Ebola epidemic, Liberian citizens are concerned, most immediately, with getting their jobs back or re-engaging in self-employment across various sectors. But many small, domestic businesses and household enterprises are likely to remain closed because owners have consumed working capital and even assets as a coping strategy during the crisis. About one-third of those surveyed in December and January reported having sold assets and sold or slaughtered livestock to cope.
Getting people back to work will be absolutely critical, not just for the economic recovery but also for social harmony. The challenge is how to do this with limited fiscal space, a shallow domestic economy and foreign investors who may need more assurances and time to re-engage. So, where should the government start? What other country lessons are relevant and how can the international community help?
A forthcoming World Bank policy note, “Creating More and Better Jobs in Liberia: Issues and Options” suggests some actions that the government could take to make a difference in the speed at which jobs are created and the quality of jobs created. Such actions include:
-
Provision of improved inputs (such as seeds and fertilizer) to encourage current farmers to re-engage, and incentives for new farmers to enter the agricultural sector. Such actions can help to improve the productivity and income of farming households;
-
Assistance with mechanical land preparation in cases where the mechanism for labor-sharing has broken down, and labor shortage is a constraint for household farming larger acreage;
-
Facilitation of improved access to credit to support the re-engagement and expansion of micro-, small and medium enterprises, including household enterprise; and
-
Institution of productive public works on a national scale, linked to rebuilding critical social infrastructure and creating training opportunities.
Even while the government takes action to get the wheels of the economy turning again, it needs to turn a caring eye to the most vulnerable, including labor-constrained and extremely poor households. Experiences in Latin America and elsewhere have shown that well-targeted social cash transfers, even when they are not conditional, can be effective in addressing chronic poverty.
Finally, the Ebola crisis need not evolve into a deeper jobs crisis for Liberia, but proactivity and a clear strategy are required. When, in September 2004, Hurricane Ivan practically flattened Grenada, a tiny island in the Eastern Caribbean, the country’s recovery mantra was “bigger and better!” Perhaps this is Liberia’s opportunity to adopt its own jobs mantra of “more and better!”
Related News
“Container island” on track
The first container and cargo ships could tie up alongside at Namport’s new container terminal on reclaimed land in the port of Walvis Bay by the close of May 2017, the acting project manager, Yuanfei Feng of China Harbour and Engineering Company (CHEC) said. Also addressing the media was Namport CEO Bisey Uirab.
With the last dredging- and land reclamation works on the container island due for completion on 4 February next year, Feng further explained the quay wall of the island would be completed by 11 April next year where-after the remaining months would be used to complete all building structures, transport infrastructure and ship to shore fabrication.
Namport is spending some N$3 billion on the container terminal project. Uirab explained the project should be read in the bigger context of Namibia’s Vision 2030, the 4th National Development Plan (NDP4) and Namibia’s more recent Transport Maritime Subsector Sectorial Execution Plan (TMSSEP).
Whereas the NDP4 aims to stimulate economic growth, job creation and to end Namibia’s income disparity, and TMSSEP seeking Namibia to develop its public infrastructure for transport and logistics, Namport is seen as one of the “enablers” to put these targets into practical action.
Adding two of the major objectives set for Namport is to double cargo throughput by 2017 from 2012’s annual cargo volumes and to ensure that Namibia’s landlocked neighbouring countries have access to the Atlantic sea routes through Namibian ports, given the country’s strategic positioning in the SADC-trade set-up.
“You will realise these targets speaks directly to us at Namport,” said Uirab. “Therefore for Namport to deliver and to meet our targets we need capacity and that is one of the reasons why the container terminal on reclaimed land became a necessity,” said Uirab, describing the terminal on reclaimed land as super infrastructure. In his address, Feng further said by the end of the construction project more than N$1 billion would have been spent on Namibian suppliers and service providers. The main areas of spending are information technology, uniforms, camp construction and a power substation for the new terminal.
Furthermore more than 700 Namibians would have benefitted directly from training programmes conducted by CHEC in the course of them either employed or contracted by the company.
Related News
EAC told to weigh pros, cons of single income tax rates
East African member states have been advised to make critical assessment of single income tax rates.
A law expert, Anatoly Nahayo said recently in Dar es Salaam after launching his book titled “East African Community Tax Harmonisation.”
He said the move will ease allocation of capital shares within EAC member states especially mobile capital.
“Member states should find ways to agree in this matter. Otherwise, it will be difficult to shift to a common market effectively,” he said.
Elaborating, he said, currently, ministers of finance in the member states have been given power to exempt tax and no one has to judge.
He also said the EAC member states should debate on tax harmonisation and put in place laws that will govern it.
He said there are many challenges that need to be addressed so as to create fairness particularly in employment around the bloc whereby workers move from one country to another in search of a job.
There are double charges recorded to the workers moving from one country to the other especially rates charged on pensions and charged in general.
Nahaya explained that if checked, all workers moving to another country within the bloc will be charged the same tax rates.
Nahana further said there is no democracy to protest the decision of finance ministers to exempt individual businessmen or company.
“It’s high time our local experts addressed national issues in the EAC. Currently, there is no tax harmonisation in the regional bloc,” he said.
On April 9, 2011, the East African Community and German Development Cooperation, through the EAC/GTZ Programme on East African Regional Integration, conducted a validation workshop of a study on the Code of Conduct against Harmful Tax Competition and a Model Agreement on Double Taxation Avoidance
According to a statement, the workshop involved senior officials and legal advisors from tax authorities and ministries of finance in the EAC partner states, as well as representatives from the private sector.
“The meeting would review a draft model agreement on double taxation avoidance among EAC partner states and non-EAC countries, plus an EAC code of conduct against harmful tax competition among the partner states,” the EAC statement read in part.
Avoidance of harmful tax competition and double taxation among the member states are both crucial for the success of the common market.
“Therefore, the EAC, supported by the German Development Cooperation, has commissioned an extensive study on the topic which will be discussed by experts from partner states and other stakeholders,” the statement said
The study developed a model agreement on double taxation avoidance, providing a guideline for all partner states when negotiating or updating DTAs with non-member countries.
The study provides an inventory of the existing DTAs between EAC countries and third parties and compares convergences and divergences in areas such as interest royalties, technical and management fees, employment income, and dividends.
It further establishes whether the provisions, especially those on the exchange of information among tax authorities, are in line with international standards.
The study also examines harmful tax regimes, recommends possible counter measures and lists best practices. Examples of harmful tax regimes are low effective tax rates, lack of transparency and lack of information exchange, artificial definition of a tax base, state aid and subsidies, failure to adhere to international transfer pricing guidelines and secrecy provisions, all of which exist within the EAC and therefore give rise to harmful tax competition among the EAC partner states.
Related News
Kenya scores big with investors from China
Industrialisation Principal Secretary Wilson Songa said setting up of such industries would give Kenyan manufacturers better access to the Chinese market and help bridge the deficit in the balance of trade between the two.
China has picked Kenya as the preferred investment destination in the region, saying the country has reformed its business environment and offers better incentives compared to its neighbours.
A Chinese delegation on a fact-finding mission in the region said Kenya presented a better environment for injecting money compared to Tanzania and Ethiopia, going by the “favourable policies” proposed by the Special Economic Zones Bill awaiting enactment.
China’s Director-General of African Affairs Lin Songtian said investors from his country were interested in setting up industrial parks in Mombasa and establishing manufacturing zones along the standard gauge railway corridor.
CONFIDENCE
“We are confident of Kenya’s legal mechanism, a one-stop-shop and incentives framework that will attract and retain Chinese investors as a strategic conduit to the African market and larger Chinese market,” said Mr Lin.
Industrialisation Principal Secretary Wilson Songa said setting up of such industries would give Kenyan manufacturers better access to the Chinese market and help bridge the deficit in the balance of trade between the two.
Dr Songa said Kenya offered more advantages to Chinese investors than its East African partners, including a larger middle population and access to the market of 400 million people drawn from its membership of EAC and Comesa.
Ethiopia is not a member of the EAC and has stalled on ratifying the Comesa customs union.
Related News
WTO: Mauritius to join Trade in Services Agreement Negotiations
Mauritius will join the Trade in Services Agreement (TiSA) Negotiations, in line with the General Agreement of Trade in Services (GATS) of the World Trade Organisation (WTO).
The GATS, an integral part of the WTO, calls upon Member States to progressively liberalise trade in services through successive rounds of negotiations.
Twenty-four countries (comprising Australia, Chile, USA, Japan, and New Zealand), two customs territories, and one economic union – the European Union – have decided to proceed with a plurilateral approach through the negotiation of a Trade in Services Agreement.
On joining the TiSA, Mauritius will offer the same market access conditions to World Trade Organisation Members, as those proposed to the EU in the context of the Economic Partnership Agreement.
GATS
The creation of the GATS was one of the landmark achievements of the Uruguay Round, whose results entered into force in January 1995.
The GATS was inspired by essentially the same objectives as its counterpart in merchandise trade, the General Agreement on Tariffs and Trade (GATT), creating a credible and reliable system of international trade rules; ensuring fair and equitable treatment of all participants (principle of non-discrimination); stimulating economic activity through guaranteed policy bindings; and promoting trade and development through progressive liberalisation.
Mauritius has been a WTO member since 1 January 1995 and a member of GATT since 2 September 1970.
Related News
India and Africa: Picking up the pace of trade and investment
On March 25 – 27 March 2015, the third annual meeting of The Growth Net will be held in New Delhi, India.
Convened by Smadja & Smadja and Ananta Centre, the event is a one-of-a-kind platform for companies from emerging economies to come together and discuss ways to “boost the business, trade, [and] financial linkages” amongst their respective countries, recent trends and developments in legal and regulatory frameworks, and other issues relevant to commercial success and economic development. In particular, this year’s conference will examine how companies develop and nurture skills relevant to their sectors, how companies develop strategies that generate comparative advantages and economies of scale, and how investment decisions are reached in a timely manner in new environments.
As part of The Growth Net’s focus on South-South cooperation, considerable attention is given to the African market and the role of companies from India seeking to enter or expand their presence there. This focus is unsurprising. A recent study found that India has the potential to quadruple its Africa-based revenue to $160 billion by 2025 through a focus on strategic sectors, such as information and communications technology, agriculture, infrastructure, pharmaceuticals and consumer goods.
Between now and the commencement of this year’s The Growth Net, Cov Africa will run a series of blogs that examines this India-Africa commercial nexus. This series will highlight the most promising sectors in Africa for Indian companies and discuss the opportunities and challenges of entering one of the most dynamic regions of the global economy.
Related News
Investment in African mega projects on the boil
Investment in African mega projects surged 46% to $326-billion (almost R4-trillion) in 2014, led by heavy investment in transport, energy and power, according to the third annual Deloitte African Construction Trends Report, which monitors progress on capital intensive infrastructure on the continent.
To qualify for inclusion in the report, projects must be valued at more than $50-million and had to have broken ground by at least 1 June 2014. While the number of projects that qualified for inclusion in the 2014 report fell to 257 from 322 the year before, the total value of projects under construction increased from $222.77-billion in 2013.
“Africa’s rapidly growing middle class continues to drive demand for sustainable social infrastructure,” said Andre Pottas, Deloitte regional director. “Africa is en route to a brighter future and overall we see the opportunities surpassing the challenges facing our continent.
“Of the projects in the 2014 Deloitte African Construction Trends Report, 143 were led by the public sector; a further 88 were private sector initiatives and 26 were classified as public private partnerships (PPPs). Energy and power accounted for 37% of the mega projects undertaken in Africa in 2014, followed by transport (34%), mining (9%), property (6%), water (5%), oil and gas (4%), mixed use facilities (2%) and health care (1%).
“More than 10% of the projects included in this year’s survey were structured as PPPs, which is an increase from about 4% the previous year,” said Pottas. “That is very encouraging to see as we believe that significant private sector participation is required alongside government initiatives in order to enable Africa to close its infrastructure gap with the rest of the world.”
Southern Africa led construction activity on the continent, accounting for $144.89-billion in projects, or 44.5% of the total value. West Africa overtook East Africa, with the region attracting $74.84-billion in projects, or 23% of the total projects on the continent by value.Central Africa experienced a massive 117% surge in the value of construction projects, which reached $33.21-billion while North Africa saw the value of construction projects jump almost 36% to $9.12-billion. East Africa experienced a moderate 10% decline in the value of projects, which nevertheless totalled a respectable $60.67-billion in 2014.
“Africa continues to be a magnet for foreign direct investment (FDI) and intra-African capital inflows,” said Pottas. “With a 76% completion rate of projects collected from our previous report, expectations remain high for infrastructure to provide the developing continent with much needed market expansion.”
Africa’s infrastructural transformation is being driven by increased output in the natural resources sector, which in turn has underpinned rising fiscal expenditure on infrastructure projects to facilitate rising international trade with the continent. At the same time, rapidly growing urbanisation and rising domestic demand in Africa has ushered in an unprecedented wave of foreign direct investment in the continent’s biggest and most dynamic economies.
Related News
Financiers favour private sector in Africa
Banks are likely to favour the African private sector over government-owned companies, says a risk consultant.
“The concern over the creditworthiness of governments facing cash constraints from fallen commodity prices means more of an emphasis on the private sector,” Jean Devlin, associate director for Africa at business risk consultancy Control Risks, tells GTR following the publication of its annual RiskMap, which plots global trends.
Devlin expects regional and international lenders will continue to dominate on the continent, with Chinese government lenders backing off: “As China re-orients its own economic model to more consumer-led growth, there is less competition from Chinese state-backed lending institutions,” she notes.
China’s declining demand for African resources has been a major factor affecting energy and commodity markets and – as a result – the coffers of African governments. According to the RiskMap report, the governments’ political inability to perform key structural reforms to diversify their economies and tackle raising debt levels in many Sub-Saharan countries is likely to limit growth this year. While economies remain dependent on commodities, a drop in energy or commodity prices can render debt unsustainable.
“The impact of the fall in commodity prices in resource-rich countries where governments are reliant on commodity earnings for revenue is the biggest concern for the trade finance market,” says Devlin. “It will affect demand for political risk insurance especially covering non-payment by state-owned companies, as well as currency risks given the devaluation pressures it brings,” she adds.
The overall outlook for trade on the continent is, however, looking up: “Non-oil sectors are expected to continue to perform fairly well even in badly-affected countries, such as Nigeria and Angola. Moreover, the impact of the price falls in other countries may well provide a boost in the form of lower energy costs, depending on their economic mix and ability to build up inventories during a period of low prices,” Devlin says.
The other good news for Africa is that the likelihood of resource-based conflict and piracy in East Africa is low for 2015, and even if terrorism remains a prominent issue, it is unlikely to have an impact on the continent’s major cities, the drivers of economic growth.
In the East African region, Mozambique shines as a particularly promising example of improvement in political stability. The country’s government had been engaged in a violent stand-off against the Mozambican National Resistance (RENAMO) guerrilla insurgence for the past two years. Since the elections in October last year, the situation has slowly stabilised: “The new government under President Nyusi still faces the difficult tasks of concluding a definitive political settlement with Renamo and coping with less favourable global environment for pursuing development of its offshore gas resources, but Nyusi has emerged as a more capable leader than many expected and a lasting deal with Renamo looks very likely, so overall stability looks much more assured,” says Devlin.
Related News
Budget 2015 Fiscal Framework and Revenue Proposals – Preliminary Comment
Initial commentary by PricewaterhouseCoopers on the Tax Proposals included in the 2015 Budget Review
There is little doubt that the 2015 Budget was the toughest since the advent of democracy. The Minister faced difficult choices and fiscal consolidation was essential in order to reduce the risk of further credit rating downgrades. Given the slow economic growth and the need to reduce the budget deficit, he could either have increased taxes or trimmed government expenditure. Ultimately, he has done both.
Areas of Concern
Level of taxation
The level of taxation in South Africa has been steadily growing since 2004 when the main budget tax revenues stood at 22.3% of GDP. It reached a peak of 26.4% in 2008 before falling substantially in the wake of the global financial crisis. However, it has since recovered to similar levels with the level of taxation estimated to be 25.8% of GDP for 2015/16, increasing further to 26.2% by 2017/18. The below graph illustrates the level of taxation from 1996/97 to 2015/16.
Of concern is that, according to World Bank Group data, South Africa had the ninth highest tax:GDP ratio of all countries (excluding social security contributions) for 2012 (in fact South Africa would rank eighth if Botswana, whose tax revenues consists substantially of SACU revenues derived from South Africa, was excluded and even higher if other exceptional jurisdictions such as Macao are excluded). South Africa’s tax:GDP ratio is significantly higher than the world and Africa averages as well as most middle income countries. The below graph illustrates the nine countries with the highest tax:GDP ratios, world and regional averages and a selection of other middle income and BRIC countries.
It is clear that South Africa has a high tax burden by international standards. While some of this tax burden is explained by a large social security system funded out of general tax revenues rather than social security taxes, if the tax burden was reduced by social security expenditure, South Africa would still have a relatively high tax burden.
It is acknowledged that South Africa’s high income and wealth inequality necessitates its fiscal policy to play a crucial role in reducing inequality and South Africa does extremely well in this regard with the largest reduction in inequality achieved by any of the countries studied at this stage. In this regard, the World Bank notes that South Africa has probably reached the limit that can be achieved by fiscal policy and that further reductions in inequality require inclusive economic growth.
However, if South Africa is to rely on the private sector to be the primary driver of economic growth and employment, it is going to have to reduce the tax burden over time in order to free up resources for investment by the private sector. This is not, however, as critical as ensuring that our tax mix is conducive to economic growth.
SACU
In terms of the SACU agreement, a combined revenue pool is created for purposes of sharing customs and excise duties while trade between the SACU member countries is duty-free. The combined revenue is shared between the member countries in terms of three formulas:
-
Customs duties are shared based on relative intra-SACU imports;
-
Excise duties are shared based on relative GDPs; and
-
A development component derived from excise duties is shared based on relative GDP per capita.
Unfortunately, the revenue sharing formula is weighted heavily against South Africa. Of particular concern is the formula for sharing customs duties. South Africa has significant trade surpluses with all other member countries. In 2014, SACU exports from South Africa amounted to R132 billion, while imports amounted to only R28 billion. The result of these significant trade surpluses is that the bulk of customs duties in the combined revenue pool accrue to the other members, notwithstanding that the vast majority of customs duties collected relate to goods that are consumed in South Africa. To illustrate the point, the total value of imports by South Africa in 2014 amounted to R1.083 trillion. South Africa’s SACU exports amount to approximately 83% of all intra-SACU trade. The result is that South Africa’s share of the SACU customs pool amounted to only 17% for 2013/14.
To put the above into perspective, a more equitable sharing of the customs revenue pool would see South Africa entitled to at least 80% of the pool. The cost to South Africa is therefore at least R30 billion. This cost far exceeds the benefit for South Africa of being able to export goods to SACU members on a duty-free basis.
More importantly, the tax increases being sought in the 2015 Budget would not be necessary were the SACU revenue sharing formula to provide for a more equitable sharing of the revenues. The BLNS countries have now become heavily dependent on the SACU revenues. The result is that South African taxpayers are funding SACU member countries to a significant extent. The below table illustrates how dependent the BLNS countries have become on SACU revenues, the strength of their fiscal positions are and how they compete favourably with South Africa on tax rates (Namibia is the exception).
The South African taxpayer is no longer in a position to be able to afford to subsidise the BLNS countries to the extent that it is currently doing. While the fiscal stability of these countries must obviously be taken into consideration in order not to destabilise the region, the agreement should be renegotiated over the medium term in order to provide for a more equitable sharing of revenues, failing which South Africa should withdraw from the agreement.
Download the full document below.
Related News
Tanzania gas plan gives priority to domestic use over exports
Tanzania will give priority to domestic use of its natural gas resources over exports under energy policy draft measures seen by Reuters on Friday.
The measures were approved by new energy and minerals minister George Simbachawene.
As in other African countries, a debate in Tanzania has focused on how much of its hydrocarbon reserves should be used locally and how much can be exported.
East Africa has become one of the world’s most sought-after oil and gas regions with a string of vast discoveries attracting foreign companies seeking new sources to supply energy-hungry Asian markets.
Tanzania’s new rules reinforce a natural gas policy passed by cabinet in 2013. That policy proposed tough conditions on foreign companies and assurances that the domestic market would take priority over exports.
However, the natural gas policy has yet to be passed into law by parliament.
Tanzania is estimated to have 53.28 trillion cubic feet (tcf) of gas, and has said that could rise four-fold over the next five years, putting it on par with some Middle East producers.
Its gas policy also seeks to address a standoff between Tanzania’s mainland and its semi-autonomous islands of Zanzibar regarding the sharing of any future hydrocarbon revenue.
“Ownership of oil and gas resources is vested to the people of the Tanzania mainland, and must be managed in way that benefits the entire society,” according to the latest draft measures.
The revenue-sharing dispute has prevented Royal Dutch Shell from beginning exploration on four blocks off Zanzibar or selling stakes in its exploration rights.
Ahmed Salim, senior associate at consultancy Teneo Intelligence, said in a note to clients on Friday said one focus was the extent to which prioritising the domestic market might affect natural gas legislation.
“Draconian measures such as export restrictions should not be expected, but regulatory frameworks such as strong local content policy should be anticipated,” Salim said.
British company BG Group, together with partners Exxon Mobil, Statoil and Ophir Energy, plans to build a two-train LNG export terminal, expected to start operating in the early 2020s. A final investment decision is set for 2016 at the earliest.